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In a ruling believed to be the first of its kind in the 2nd U.S. Circuit Court of Appeals, a federal district judge has held that the city of White Plains, N.Y., may regulate the installation of a telecommunication provider’s fiber optic cable network and be compensated by the carrier for using city property to provide services to the public. In TCG New York, Inc. v. City of White Plains, Southern District Judge Barrington D. Parker Jr., ruled Dec. 21 that a local ordinance and the city’s proposal requiring Teleport Communications Group, a subsidiary of AT&T Corporation, to pay an annual 5 percent franchise fee on all revenue derived for operating telecommunications equipment within city limits was “fair and reasonable” under Section 253 of the 1996 federal Telecommunications Act. At the same time, however, the court struck down other sections of the ordinance that did not directly relate to managing the city’s public rights-of-way, specifically, that the carrier provide information concerning the nature of services, sources of proposed financing and the city’s right to inspect facilities and records of the franchisee. “… [W]hile the City has broad rights to negotiate provisions permitting it to inspect facilities in the rights-of-way, its rights concerning inspection of records … must be limited to information necessary to enforce its rights-of-way regulations and to ensure that it has received accurate fee information,” wrote Judge Parker in the 50-page decision. Section 253 of the Telecommunications Act prohibits state and local governments from preventing carriers from providing the public with telecommunications services. Yet under the statute’s safe harbor provisions, the Act permits municipalities to regulate a city’s public rights-of-way and determine reasonable fees for a carrier’s use of the public’s rights-of-way. The origins of the dispute between TCG and the City of White Plains began on Dec. 1, 1997, when the city passed an ordinance requiring telecommunications firms to submit a formal application to the Commissioner of Public Works and the Office of Corporation Counsel. Firms were required to provide information on the equipment to be used, construction plans and sources of financing. The city and the carrier would then be required to negotiate the terms of the franchise agreement, which would determine variables such as the amount of compensation to be paid to the city and the city’s right to inspect the premises. When it became clear that the parties could not agree to franchise terms, TCG filed suit on June 18, 1999, alleging violations of federal, state and constitutional law. Although the city attempted to resolve certain differences by proposing a new franchise agreement, the “August Proposal,” which required TCG to pay an annual 5 percent franchise fee to the city for its use of city property, TCG still pressed its lawsuit. VIOLATION OF SECTION 253 TCG argued that the ordinance and the August Proposal requiring local franchise approval and an annual 5 percent fee effectively prohibited it from providing telecommunications services. Although the court ultimately upheld the 5 percent fee as reasonable, the court did rule that the city violated Section 253 because it made the process of obtaining a franchise into “a lengthy and complex negotiation between the parties” that spanned seven years since TCG’s initial 1992 request. The court also held that Bell Atlantic’s exemption from the local law’s franchise and fee provision was not discriminatory because the city gave “powerful reasons why Bell Atlantic should be treated differently.” “For nearly 100 years, Bell Atlantic has been installing equipment and facilities under the City’s streets. Over this long period of time, Bell Atlantic has, in fact, been paying a fee to the City, in the form of having provided the City with free use of its conduit a valuable asset in exchange for using the rights-of-way … Moreover, Bell Atlantic must offer universal service and affordable rates to the City’s residents, while new entrants such as TCG may limit their offerings to the most profitable business centers,” the court wrote. Daniel L. Carroll of Ingram Yuzek Gainen Carroll and Bertolotti LLP in New York City was the lawyer for TCG New York Inc., TC Systems Inc., and Teleport Communications. Anthony D. Boccanfuso, Stephanie Phillips and Phillip Horton of Arnold & Porter in New York City represented the City of White Plains.

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